New drug policy will hurt investment in pharma sector

November 25, 2012 12:02 IST

Prices of various leading drug brands will come down by up to 80 per cent thanks to the newly-approved National Pharmaceutical Pricing Policy but at the same time it will hurt investment sentiments in the country's pharmaceutical sector, according to industry bodies.

According to the Indian Pharmaceutical Alliance (IPA) and Organisation of the Pharmaceutical Producers of India (OPPI), the new drug policy would also adversely impact profitability of Indian pharmaceutical companies.

"A preliminary working shows that prices of many leading brands will be slashed by 50 per cent to 80 per cent. This will reduce industry profit by half to Rs 4,000 crore on domestic sale of Rs 67,500 crore," IPA Secretary General D G Shah told PTI.

This will hurt investment climate in the country and may also deter companies from investing or expanding production capacity of National List of Essential Medicines (NLEM) medicines, he added.

Expressing similar views, OPPI Director General Tapan J Ray said it will have an "immediate and significant adverse financial impact on the industry".

Ray, however, said the market-based pricing is "directionally prudent" for the country in the longer term.

"It will help improving both affordability and availability of medicines. Such a policy along with the government initiative to make essential medicines available

free of cost through public hospitals and health centres will benefit all sections of the society, giving a boost to overall consumption of medicines in our country," Ray added.

The drug policy, which has been cleared by the Cabinet on November 22, will bring 348 essential drugs under price control.

At present, the government through the National Pharmaceutical Pricing Authority (NPPA) controls prices of 74 bulk drugs and their formulations.

According to the approved policy, prices of medicines will be capped by taking simple average of all brands which have more than one per cent of market share instead of input costs.

Meanwhile, non-profit organisation Jan Swasthya Abhiyaan (JSA), which has been demanding that ceiling prices of drugs must be calculated on the basis of actual manufacturing costs, said the policy would lead to only "tokenish reduction" in the prices of essential drugs.

"This decision would more or less legitimise the current exorbitantly high prices of essential medicines; there will be only tokenish reduction in their prices," JSA Joint Convener Amit Sengupta said.

This view was countered by Lupin Ltd Group President Shakti Chakraborty, who said the government's decision to adopt market-based mechanism instead of cost-based mechanism is a win-win situation for both the patients and industry.

"It is a good thing that the government has chosen to adopt a market-based mechanism as against a cost-based mechanism, thus protecting industry interest to a large extent as also ensuring that drugs reach patients in a cost-effective manner," Chakraborty said.

Commenting on the policy, Deloitte Director, Strategy & Operations, Anjan Sen said the impact of the new policy will vary for different stakeholders.

"Now there is clarity on which way this will go. Accordingly, companies can modify their strategies and focus on appropriate areas to minimise the impact," he said.

He added that it may not be easy in the short term, but with well thought out strategies large part of the impact can be negated in the medium to long term.